3 ms·

I'm confused by the emphasis on an "all-cash offers". It conveys images of buyers lugging a suitcase full of cash to open houses, but as far as I know, it just

by nkurz 3y ago

I'm confused by the emphasis on an "all-cash offers". It conveys images of buyers lugging a suitcase full of cash to open houses, but as far as I know, it just means that the buyer isn't asking for a "financing contingency". Which is to say, they aren't asking for the ability to scuttle the deal without consequences if some 3rd party says they don't want to make a loan. The buyer still might be borrowing the money, they just aren't making the deal dependent on their ability to get a conventional mortgage. Avoiding contingencies like this can be a good thing, since depending on the other contingencies it might make the deal more likely to go through, or to go through more quickly. But in most cases the buyer still has contingencies for inspections and probably a whole bunch of other things that will let them back out if they really want. Whether it's an "all-cash offer" or a standard mortgage, unless they are providing seller financing (rare), the same amount of money gets wired to the seller's back account at closing. Am I missing something? Or is "all-case offer" in a headline indeed an empty phrase that usually signifies that the article is probably selling a false narrative based on misconceptions?

lokar 3y ago
It could be just the lack of contingency as you say. But a quote from an agent is about not taking a loan, and I’ve personally seen that as well. All cash, meaning wire the whole amount from a personal account into escrow.
Tiktaalik 3y ago
It could be a narrative building thing... The biggest takeaway really is that people are likely leveraging existing equity, so there's likely a generational and class element to the purchases. (ie. people are "all cash" because they sold their old highly valuable house, and buying a new one)
- sybercecurity 3y ago
  I have been told from a Realtor that this is happening in the East Coast anyway. A lot of millennial couples/families buying their first house with a gift/inheritance from boomer parents. The parents sold their house and used the money to help their children buy their first house. Sometimes all cash, but more often a big down payment (over 20%) to avoid having a large mortgage payment.
amlozano 3y ago
It means at the very least that the buyer is affluent enough to have that kind of liquidity available. That's out of reach for a lot of people, but yeah, it does summon this image of suitcases full of cash unnecessarily. Maybe its the modern equivalent of that, with less criminal overtones?
oasisbob 3y ago
In the Seattle market, it's common for competitive offers to waive the financing contingency, but to also include lender pre-approval info in the bid packet. Not sure if I would consider that a cash offer; financing can still fall through and scuttle the deal.
- panarky 3y ago
  If there's no financing contingency identified in the contract, and the buyer can't come up with the cash to close, then the buyer forfeits whatever deposit or earnest money they paid.
kbar13 3y ago
all-cash is standard lingo that means the buyer isn't taking a loan, which is what the majority of buyers do in a "normal" market the whole article is about how the high interest rates aren't having the effect the fed wants on buyers bc buyers don't have a mortgage payment if they just have the cash available
- mangosteenjuice 3y ago
  This isn't true. There are lenders that will loan you money in a way that qualifies your offer as all-cash, even though you are still borrowing money with interest. I think the distinction is based on whether or not the borrowed money comes from a traditional mortgage.
pixl97 3y ago
>The buyer still might be borrowing the money You're missing something that many/most states have laws that the seller/buyer must disclose, not the price the house is sold for, but how much of a loan was issued for the house. If they are not disclosing this then it's likely they are committing a crime by not doing so. The fact we are seeing larger amounts of 'paid in full' on houses is a significant anomaly and represents a change in market dynamics, and all changes in market behavior should be monitored. For example when we saw leading up to 2008 crash the "interest only loans", it was predicted by a sizeable number of people that a crash was happening 'soon', and in which it did. Of course this varies by state, so other laws can apply.
- nkurz 3y ago
  Thanks, that would be a good theory that could be tested by comparing the number of houses sold with the number of loans reported, presuming constant levels of legal compliance. Do we see that? Perhaps we do, but the article seemed to focus on a real estate agent's anecdotes and impressions. Also, would I be right to presume that this applies only to standard real estate loans? Are margin loans against stock required to be reported? Or private loans from parent to a child? I'd thought the reporting requirement had more to do with cases where the loan acts as a lien against the house. Edit: Here's a Bogleheads thread that summarizes my understanding: https://www.bogleheads.org/forum/viewtopic.php?t=352355 https://www.bogleheads.org/forum/viewtopic.php?t=352355. It looks like in California markets (where the article is about) there are various companies that specialize in short term loans to enable "all cash offers".
- bdowling 3y ago
  > many/most states have laws that the seller/buyer must disclose, not the price the house is sold for, but how much of a loan was issued for the house. As far as I know, this is usually not true. Neither the buyer nor seller must disclose the existence of a loan on the property. For example, many loans are between family members who would prefer to keep them private, and the law allows that. Practically, however, any commercial lender (even a seller who offers financing) will record a mortgage with the county recorder so that he has priority in a foreclosure. The sale price, however, usually is disclosed at least to the county assessor for property tax purposes. The exceptions would be where an heir inherits a property and the value is not reassessed.
smallmancontrov 3y ago
It's a concession that is easy for people buying investments and difficult for people who are stretching to afford home ownership. The highly regressive nature of housing appreciation has long drawn criticism, but the raft of policy choices that produce this outcome has historically been defended by the notion that most Americans benefit. Rich Americans benefit more, but most Americans own vs rent, so most Americans benefit, at least in nominal terms. Changes in the composition of demand are notable, and this is an indicator. When investment demand begins to exceed consumption demand, when most Americans do not benefit, there are electoral consequences to our democratic process that might signal a secular shift in those policy choices. The indicators are worth watching.
swatcoder 3y ago
A more reliable and shorter escrow is of high value to sellers. Failed escrows break momentum on marketing and buyer interest and obviously cause major logistical frustrations for the seller. Provided that a house draws competing offers, the everyday residential home buyer expecting to finance their mortgage needs to offer comparable or greater value in some other way, such as by making a substantially higher offer than the all-cash buyers. Many of these traditional buyers find it hard to anticipate how much higher their offer will need to be (the value of a more reliable escrow is subjective) and are often bidding mostly blind anyway. Further, affordability is already strained for most of these buyers and many shop by list price, unable to effectively compete in a bidding wars. A high rate of all-cash offers usually correlates with a much more difficult and fatiguing home buying process for traditional in-community middle class buyers and sustained high prices. The article is basically just affirming that this dynamic currently (continues) to be at play in SoCal even as other markets soften.
Ajay-p 3y ago
It doesn't have the same clickbait punch to say "homeowners with greater liquidity and access to loans." The title is supposed to convey rich people using their hoards of cash to push up housing prices.
1vuio0pswjnm7 3y ago
"Am I missing something?" https://en.wikipedia.org/wiki/Cash_offer https://en.wikipedia.org/wiki/Cash_offer

by nkurz 3y ago

lokar 3y ago

It could be just the lack of contingency as you say. But a quote from an agent is about not taking a loan, and I’ve personally seen that as well. All cash, meaning wire the whole amount from a personal account into escrow.

Tiktaalik 3y ago

It could be a narrative building thing... The biggest takeaway really is that people are likely leveraging existing equity, so there's likely a generational and class element to the purchases. (ie. people are "all cash" because they sold their old highly valuable house, and buying a new one)

sybercecurity 3y ago
I have been told from a Realtor that this is happening in the East Coast anyway. A lot of millennial couples/families buying their first house with a gift/inheritance from boomer parents. The parents sold their house and used the money to help their children buy their first house. Sometimes all cash, but more often a big down payment (over 20%) to avoid having a large mortgage payment.

amlozano 3y ago

It means at the very least that the buyer is affluent enough to have that kind of liquidity available. That's out of reach for a lot of people, but yeah, it does summon this image of suitcases full of cash unnecessarily. Maybe its the modern equivalent of that, with less criminal overtones?

oasisbob 3y ago

In the Seattle market, it's common for competitive offers to waive the financing contingency, but to also include lender pre-approval info in the bid packet. Not sure if I would consider that a cash offer; financing can still fall through and scuttle the deal.

panarky 3y ago
If there's no financing contingency identified in the contract, and the buyer can't come up with the cash to close, then the buyer forfeits whatever deposit or earnest money they paid.

kbar13 3y ago

all-cash is standard lingo that means the buyer isn't taking a loan, which is what the majority of buyers do in a "normal" market the whole article is about how the high interest rates aren't having the effect the fed wants on buyers bc buyers don't have a mortgage payment if they just have the cash available

mangosteenjuice 3y ago
This isn't true. There are lenders that will loan you money in a way that qualifies your offer as all-cash, even though you are still borrowing money with interest. I think the distinction is based on whether or not the borrowed money comes from a traditional mortgage.

pixl97 3y ago

>The buyer still might be borrowing the money You're missing something that many/most states have laws that the seller/buyer must disclose, not the price the house is sold for, but how much of a loan was issued for the house. If they are not disclosing this then it's likely they are committing a crime by not doing so. The fact we are seeing larger amounts of 'paid in full' on houses is a significant anomaly and represents a change in market dynamics, and all changes in market behavior should be monitored. For example when we saw leading up to 2008 crash the "interest only loans", it was predicted by a sizeable number of people that a crash was happening 'soon', and in which it did. Of course this varies by state, so other laws can apply.

nkurz 3y ago
Thanks, that would be a good theory that could be tested by comparing the number of houses sold with the number of loans reported, presuming constant levels of legal compliance. Do we see that? Perhaps we do, but the article seemed to focus on a real estate agent's anecdotes and impressions. Also, would I be right to presume that this applies only to standard real estate loans? Are margin loans against stock required to be reported? Or private loans from parent to a child? I'd thought the reporting requirement had more to do with cases where the loan acts as a lien against the house. Edit: Here's a Bogleheads thread that summarizes my understanding: https://www.bogleheads.org/forum/viewtopic.php?t=352355 https://www.bogleheads.org/forum/viewtopic.php?t=352355. It looks like in California markets (where the article is about) there are various companies that specialize in short term loans to enable "all cash offers".
bdowling 3y ago
> many/most states have laws that the seller/buyer must disclose, not the price the house is sold for, but how much of a loan was issued for the house. As far as I know, this is usually not true. Neither the buyer nor seller must disclose the existence of a loan on the property. For example, many loans are between family members who would prefer to keep them private, and the law allows that. Practically, however, any commercial lender (even a seller who offers financing) will record a mortgage with the county recorder so that he has priority in a foreclosure. The sale price, however, usually is disclosed at least to the county assessor for property tax purposes. The exceptions would be where an heir inherits a property and the value is not reassessed.

smallmancontrov 3y ago

It's a concession that is easy for people buying investments and difficult for people who are stretching to afford home ownership. The highly regressive nature of housing appreciation has long drawn criticism, but the raft of policy choices that produce this outcome has historically been defended by the notion that most Americans benefit. Rich Americans benefit more, but most Americans own vs rent, so most Americans benefit, at least in nominal terms. Changes in the composition of demand are notable, and this is an indicator. When investment demand begins to exceed consumption demand, when most Americans do not benefit, there are electoral consequences to our democratic process that might signal a secular shift in those policy choices. The indicators are worth watching.

swatcoder 3y ago

A more reliable and shorter escrow is of high value to sellers. Failed escrows break momentum on marketing and buyer interest and obviously cause major logistical frustrations for the seller. Provided that a house draws competing offers, the everyday residential home buyer expecting to finance their mortgage needs to offer comparable or greater value in some other way, such as by making a substantially higher offer than the all-cash buyers. Many of these traditional buyers find it hard to anticipate how much higher their offer will need to be (the value of a more reliable escrow is subjective) and are often bidding mostly blind anyway. Further, affordability is already strained for most of these buyers and many shop by list price, unable to effectively compete in a bidding wars. A high rate of all-cash offers usually correlates with a much more difficult and fatiguing home buying process for traditional in-community middle class buyers and sustained high prices. The article is basically just affirming that this dynamic currently (continues) to be at play in SoCal even as other markets soften.

Ajay-p 3y ago

It doesn't have the same clickbait punch to say "homeowners with greater liquidity and access to loans." The title is supposed to convey rich people using their hoards of cash to push up housing prices.

1vuio0pswjnm7 3y ago

"Am I missing something?" https://en.wikipedia.org/wiki/Cash_offer https://en.wikipedia.org/wiki/Cash_offer